Trump, tariffs and turmoil: ‘Liberation Day’ one year on
On the first anniversary of ‘Liberation Day’, Tim Hames reflects on the economic impact of Donald Trump’s tariffs
A year ago today, Donald Trump declared “Liberation Day” as he launched his new initiative on tariffs. He did so on the White House lawn to enormous fanfare, in front of an adoring crowd and with the assistance of a large chart which faintly resembled the scoreboard at the Eurovision Song Contest (except that in this case “nul points” would have been a very desirable outcome). An enormous experiment was to be imposed upon an unenthusiastic international economy. Private markets, as other sections of the business sphere, waited to see what would happen.
Twelve months on and “Complication Day” would be a better description of the situation. The Trump tariff regime has triggered the sort of ride that a rodeo would be proud of. The initial set of numbers implied a rise in the overall net tariff rate of more than ten-fold (from 2.5 per cent to 27 per cent). The prospect of this prompted a bond market revolt and a partial retreat by the US Administration. The new structure was paused for 90 days to allow for negotiations on fresh trade treaties. The exception to this was China where at one stage the United States was threatening a tariff of 145 per cent on Beijing before the first of a series of truces between the two countries was concluded.
Frantic
Frantic discussions led to a series of interim deals (with the United Kingdom the first in line) and an uneasy peace in which the outside world preferred to bargain down the tariffs rates that it faced rather than retaliate and create a trade war of unknown but potentially seismic consequences.
The calm was knocked sideways for a brief period earlier this year when the President asserted that eight European nations faced a 25 per cent tariff if they continued to back Denmark on Greenland. No sooner had that storm abated than the Supreme Court threw the mother of all spanners into the works on 20 February by ruling that the principal mechanism by which Mr Trump had acted to increase tariffs was unconstitutional. Within hours, Mr Trump reached for another means of achieving his ambitions through Section 122 of the Trade Act 1974 and so an across-the-board 10 per cent tariff that would last for 150 days until 24 July unless reauthorised by Congress (which is highly unlikely). After that, other provisions of the Trade Act 1974 (Sections 301 and 302) along with Section 232 of the Trade Expansion Act 1962 will probably enter the equation. All of which means even more complication for companies who have no idea what their tariff in 2027 will be.
It might be tempting for those in private markets to lie down in a dark room and just do nothing. That would be a mistake. Complication creates opportunities as well as challenges. That is especially true for those in private equity or private credit who are based in this country.
Economic policy is, admittedly, in a Rubik’s Cube era. The fundamentals, though, are as follows. The tariff turmoil has not sent the world’s GDP into a tailspin (there is more risk of the Iran War doing that). The effective overall tariff rate as of today is about 13.7 per cent, a lot more than April 2024 admittedly, but half of where it stood last April. Financial services are not a party to this conflict. The relative position of the UK in terms of tariffs is a strong one. It is also viewed as an attractive investment option by many outsiders as the wall of American money coming in the direction of UK venture capital indicates strongly. Deal flow in the UK private equity industry is rebounding. Pessimism is overpriced at present. Private markets must press on, not be torpedoed by tariffs.
Dr Tim Hames is a senior adviser to Treble Peak